On Game Theory and the Law
Dau-Schmidt, Kenneth, Rasmusen, Eric, Stake, Jeffrey Evans, Heidt, Robert H, Alexeev, Michael, Law & Society Review
Douglas Baird, Robert Gertner, & Randall Picker, Game Theory and the Law. Cambridge, MA: Harvard University Press, 1994. xii + 330 pages. $45.00.
On 18 January 1996 the Indiana University Law and Economics Lunch Bunch1 met to discuss the book Game Theory and the Law by Douglas Baird, Robert Gertner, and Randall Picker. Professor Dau-Schmidt wanted to review the book and, being rather a strong believer in social cooperation, thought a group effort would be a good idea. The rest of us, being eager to express our opinions, agreed.
Dau-Schmidt: I want to read a section from the preface of the book that sets forth the purposes the authors had in mind, and then ask your responses.
This book rests on the premise that game theory can offer insights to those who want to understand how laws affect the way people behave.... First we wanted to introduce the formal tools of modern game theory to a wide audience.... Second, and as important, we wanted to show how modern game theory allows us to sharpen our intuitions and provides us with new ways of looking at familiar problems. In short, we have tried to write a book that offers those interested in law a new way of thinking about legal rules, and a book that shows those interested in game theory a fertile and largely unexplored domain in which its tools have many applications. (P. xi).
The book goes on to describe a variety of game-theoretic tools, including the normal form of a game, the extensive form of a game, modeling imperfect information, signaling, screening, reputation, repeated games, collective action problems, noncooperative bargaining, and bargaining and information problems; and then it applies these game-theoretic tools to a variety of legal problems, among them tort theory, contract law, antitrust law, bankruptcy law, employment law, and labor law.
Have the authors succeeded in their purposes? Mike?
Alexeev: To some extent they did, and to some extent they did not. My impression was that the book was written mostly for lawyers. I think that the authors succeeded in demonstrating the usefulness of game theory to people who do not have any previous exposure to game theory. The authors present a number of simple, but useful, applications to legal doctrine including tort law, antitrust, and labor and employment law. But the book does not really show a "fertile and largely unexplored domain" of applications to game theorists and economists. Most of the book's material comes from economics articles, and even the trial cases are mostly the cases that have already been discussed in the economics literature, so the book is much less useful for the economists or game theorists in particular. But I enjoyed reading it, and I think it will be useful for lawyers.
Rasmusen: I agree that it may be most useful for people in law who would like to see applications of game theory to particular areas of law. A tort expert might want to read the chapter on torts for its descriptions and numerical examples demonstrating how particular game theory models can be applied to tort law. The book is weaker as a general reference for somebody who's in a hurry to find something. Although the index and glossary2 are good, the structure isn't convenient for reference. This isn't a mathematical book, but it is a dense one which requires careful reading.3
Stake: The authors are quite successful in showing how game theory can provide marvelous counterintuitive insights. But I'm not confident that my law students could slog through the material without some help. I found the book challenging to read, for two opposing reasons. There are portions that are overexplained, even for lawyers. On the other hand, there were places where the explanation seemed thin. For example, it was not immediately obvious to me where the authors got the two sides of the inequality on page 169. It turns out that the same formula was used for both sides, but one side had already been simplified. …